Yemisi Izuora
Oil prices extended gains for a third session on Wednesday, rising alongside broader financial markets on the hope that Washington will soon approve a massive aid package to stem the economic impact of the coronavirus pandemic.
U.S. crude touched a high of $25.24 a barrel early in the session and was at $24.82 a barrel, up 81 cents, or 3.4 per cent, while Brent crude was trading up 75 cents, or 2.8 per cent at $27.90 a barrel after rising to a high of $28.29.
The U.S. Congress may vote on Wednesday on the $2 trillion stimulus after Republicans and Democrats said they were close to a deal, with optimism over the package fueling a surge in stock markets.
Still, demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns to curb the spread of the coronavirus, putting a lid on oil price gains.
“It will be difficult to lift demand if lockdowns are announced in many countries and airline services remain suspended,” ANZ analysts said in a note.
The market is also facing the threat of increased supplies after the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, a grouping known as OPEC+, failed to extend an agreement to cut production and support prices beyond end-March.
Oil prices have fallen about 45 per cent so far this month.
“A pare back in production from the OPEC+ and a stabilization in the coronavirus episode are both needed to lift oil prices back to its pre-collapse prices,” analysts at OCBC Bank said in a note.
In the United States, crude inventories fell by 1.2 million barrels in the week to March 20 to 451.4 million barrels, compared with analysts’ expectations for a build of 2.8 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.
Gasoline and distillate stocks also fell last week, API said.
Analysts said in a Reuters poll on Tuesday that U.S. crude oil stockpiles likely built for a ninth successive week, while inventories of refined products were expected to have dropped, with gasoline set to decline for the eighth straight week.